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00:00Tuesday the 5th of July European stocks are lower. The euro is trading 1 2 against the dollar. The countdown to the close starts right now. The countdown is on in Europe. This is Bloomberg Markets European clothes with Guy Johnson and Alix Steel. So fairly fairly violent Tuesday after a calm Monday. Yes the US was out Tuesday is delivering all of the fireworks. You've got a 4 0 1 on the stock 600 400 definitely well within range. Right now we're down by seven points. You've got euro dollar. This is a really violent move. Trading 1 0 to 43. We're down by one point seventy percent at the moment. The big moves coming through there. You've got a massive move again kind of in the bond market. The bond market really active at the back end of last week. Yesterday calm but today once again very active as you can see with 12 basis points lower. So the bond market catching a huge big. Really difficult to see kind of where we go next. The key question as we've been discussing throughout the last few weeks is the energy story. Where does gas go here in Europe. Because that's kind of a material impact on all of the assets pretty that are behind it. You know it's interesting the amount of domino effect you're seeing the gas story the oil story having a ripple effect in the back story and what the ECB might do. Which one is the better than moving the dollar which is then coming in to move the stock market. Take a look at the U.S. stocks are doing. The S & P 500 down two point one percent. Already Nasdaq down about 1 percent. So once again the defensive trade is outperforming but still down to the tune of 1 percent and even as yields are lower. Check this out to anyone on the 10 year yield. See that sharp reversal from that 3 percent there. But I think the crude story that's really interesting here because as you see that dollar surge the ripple effects are really happening in the commodity space. Take a look at this one a one on nine max crude here. Does it drop below that 100 level stateside guy. That's going to be a key question. Absolutely. Energy front and center in this narrative the recession story. Everybody is focusing. They're trying to figure out what's going to happen next. The euro sliding to a 20 year low against the US dollar today. Traders betting the ECB will go slower on raising rates. You've also got the unknown about what the second half of the year is ultimately going to look like from an economic point of view. Will the gas beyond or will the gas be off. Dominic Bunning HSBC is head of European Ethics Research. Joining us now on set Dominic really violent moves. Why. Well look I think at the moment as you know we're going through the stage where the markets are sort of reassessing the idea of what's gonna happen on growth. And I think you made that point about recession risks. You know today in Europe you've seen the services numbers in the PMI is really start to come down. And one of the big hopes in Europe was that yes we new goods demand and manufacturing demand was slowing. Services going to fill the void and that just isn't happening. If anything it's weakening fast. So it's really hard to see the upside here for you. The European growth story. And yet inflation remains a big problem. Therefore the ECB is still in tightening mode. And it's a really really nasty growth inflation mix. That's something we've been flagging really for the last few months. But if anything the move in euro dollar is getting there much faster than we thought. Faster than we thought. Does that mean we're due for a reversal that could come sooner than expected. Look I don't think we're ready to reverse yet because the underlying dynamics aren't improving. You know when you look at that growth story like I said it's just getting worse. You know if you look at the revisions to growth estimates since the start of the year in Europe those numbers have consistently gone down and down much faster than the rest of the world. And the inflation expectations have gone higher and higher. So it's not growth inflation tradeoff in Europe which is is really challenging. And as I say at the moment it doesn't appear to be stabilizing. And that's also true of some of the other variables we look at in effect. So whether it's the current account position in Europe we know with Germany recording its first trade deficit in 30 years yesterday. So you know all of the things we're looking at here for effects seem to still be pointing towards further euro downside. And we think we get to parity it and probably go through it. OK. Two questions on that. How much further through. And in terms of the economic impact of going through it. What is it. Is this a positive thing for Europe as a weaker currency going to be the pressure release valve that allows the European economy to find a way out or is it just going to have a negative effect. Because actually all the inflation is coming through the energy channel and that's where the pain is being felt. Well we didn't think we could get a huge move through parity. We're sort of in the high 90s in terms of our end point at the moment. But that's based on the less information you mentioned what happened with gas. If if that gas supply story gets constricted further into winter that could obviously have a bigger negative impacts. And I think that point there about the supply side shock is really the point because this is a supply driven store in Europe. It's not about you know strong demand particularly. It's pushing up inflation. It's really the supply constraints that squeezed Europe. The commodity story. And I do think the risk here is that actually the weaker euro becomes more of a hindrance than it doesn't help. You know when you think about what would normally help of having a weaker euro it would help exports help go through that channel. But actually exports look very weak because there's not enough demand globally for Europe's products. It's not a case of the euro needing to be more competitive. The demand isn't there and you're facing a supply issue. So it looks pretty ugly. Dominic is that your forecast. Even in the face of a recession for example City came out earlier and said that oil prices could drop to a low sixty five dollars in a recession scenario. Do you stand by that. If Europe finds itself in a recession. Yeah absolutely. I mean I think if you if you see Europe go into a recession certainly ahead of you know the US and ahead of the rest of the world then that still plays to the downside for Europe. Obviously we maybe get to a point where oil prices fall right. Expectations start to drop. Maybe the Fed starts to even cut rates. You know we're talking a long way in the future here possibly. But those are the sorts of things that need to change. You need to see all of that bearishness bearishness come through in the euro and you probably need to see a change in dynamics on the US side of things. You know we haven't spoken about the US yet but the US is facing similar challenges to Europe but they're nowhere near as acute. You know the growth numbers are being revised down modestly but actually there's still an underlying decent story there. The inflation numbers yes they're higher but it's more of a domestic demand driven inflation which is not quite a good thing for a currency. So I think it's not just about the euro side. It's also what's happening in the US and for things to really change. You probably need both sides of the equation to move Scarlet Fu about sterling. Where do you see cable going. Are you against the dollar. Where do you see euro sterling going. Which is going to be the weakest pair within Europe. Really. The latter actually. That matters more for British business. Yeah. Look I mean it's really the battle of the ugly contest. You know that sort of thing. A tale of two absolutely terrible stories. We've actually you know we think Sterling probably starts to find more of a base here not because the story is much better than Europe. More just from a valuation perspective Sterling does look a bit cheaper than euro does in terms of the valuation metrics we use. So we do think euro studying can probably come a little bit lower. But this is by no means a positive sterling story. It's just the case that Sterling kind of moved again. Just to come back to this issue of is that a good thing for the British economy. Is a weak currency going to help here or again because of the supply side shock. Is this a big negative. Well we I've been doing this for nearly 15 years and we've had a weaker pound pretty much consistently throughout time. And we haven't had any improvement in the U.K. external balances. We haven't had any improvement in export led growth and a weaker pound. And I don't think that will be the case this time. You know again the U.K. story is not one whereby we just need a weaker currency to help boost growth. We've got weak productivity. We've got weak domestic demand growth drivers. And it's very hard again to see where that positive catalyst comes from. For Sterling. So. So it's still a very tricky picture here to. Let's talk about euros whiskey here. What's your take. Well look I think you're a Swiss he is one of the really interesting stories we've been we've been calling for euros wishing to get to parity. You know as I said a lot of moves have got there a bit quicker than we were expecting. But. But you know from here it does start to depend on what the S & P is doing. So if you go back to the back end of last year the S & P wasn't really intervening. But that was because a lot of the flows into Switzerland were kind of real economy flows. They were export driven flows. Historically when we've seen more of this hot money speculative safe haven type flow that's been when the SNB has stepped in. But you know the last meeting from the central bank they're showing signs that they're sort of changing their stripes a little bit here. So we certainly need to be wary that the SNB maybe won't create the same line in the sand that it would have done in the past. And actually the Swiss franc on a valuation basis is not as expensive as it used to be. So you know they may have a bit more room to let the Swiss franc run. So you know yes I've been calling for parity could edge a bit further. There's there's probably room for an overshoot here as well. I know when the central banks realize that they need to do something about their currencies at the moment you ask us Christine forgot about the currency. She may say something. She would have said anything before but now she started talking about it. Same with the Bank of England as well. When do they start saying actually we do have a supply shock problem here. We can't deal with a euro dollar rate that is below parity. We can't deal with sterling at 115 or whatever. Ultimately it's going to be on the table right. Well the thing is you're right. You're in that kind of almost impossible Trinity story because you know if you want as a central backstop your currency falling you've really got one tool. You need to hike rates and you type rates very very quickly very aggressively not just on a one off sense. I mean the Bank of England spoke about this. Catherine Mann spoke today saying you know we if we hike rates a bit earlier we might get cable to stabilize. The effect market will look through that. If you're just doing one hike to translate those stabilize your currency. That will not work. So you need to kind of really change the way you're thinking about it. And I don't think either the banking or the ECB are able to do that given the growth dynamics that we're seeing in this part of the world because you will very much be tightening aggressively into a very sharp growth slowdown. So I think it's a really really tricky position for both those central banks. And the policy constraints that that sort of creates is part of the reason why we see that currency weakness. Dominic Bunting HSBC head of European affects research and bringing us the energy that we so so needed. Thank you as always. Coming up the Bank of England says the global economic outlook has deteriorated materially. Our next guest expects inflation to peak in several major economies. Melanie Baker Royal London Asset Management senior economist joins us next. This is Bloomberg. This week all eyes are on some valley where the titans of tech and media meet to talk business. And Bloomberg will make sure your part of the action with live coverage and impactful interviews. It all starts Wednesday July 6th right here on Bloomberg. So the Bank of England says the global economic outlook has quote deteriorated materially after surging commodity prices have had their effects. Governor Andrew Bailey spoke following the publication of the central bank's financial stability report. Global financial conditions as a whole have tightened significantly. This is in part due to central banks across the world having tightened monetary policy in response to the outlook for inflation. Market interest rates and corporate bond spreads have also risen in part reflecting expectations of further tightening policy. And developments in Russia's invasion of Ukraine are a key factor affecting the global outlook. Governor Palin speaking a little bit earlier on. Joining us now with analysis Bloomberg's European economics correspondent Lizzie Borden. Lizzie he sounded fairly pessimistic today. Let's talk about the compare and contrast with the last report in December. How much has changed. Well since then obviously we've got a war in Ukraine. But Andrew Bailey saying that while the market has been volatile it is functioning but the banking industry is much more resilient than it was after the financial crisis. That's the point he wants to make. And so yes it sounds pessimistic in terms of the climate but actually there's faith in how the banks are coping hence why the period is going to move ahead with the stress tests that had been postponed from March. They're going to take place in September. Now the results are expected in the middle of next year. And also the B.O. is going to reintroduce the capital Beaufort. So taking it back to its pre pandemic level of 2 percent. So it shows they actually said that the capital position is strong. Profitability has strengthened. The main risk really is in commodity markets. And so that's why they're going to have a probe into the transparency of those markets. Well let's talk about the housing here and simply the affordability. I think Boris Johnson had talked about potentially considering tackling the mortgage side of it. How concerned is the Bailey about mortgage affordability just given the rising interest rate environment. Well the clearest measure was the deputy governor John Cunliffe said that interest rates could rise to 5 to 8 percent before people start defaulting on their mortgages. There are a long way off that. And interestingly Andrew Bailey said well he acknowledged the growth in fixed rate mortgages people taking them out during the pandemic to take advantage of the rock bottom interest rates. Now they're coming up to the end of the term and they're going to have to face the rising interest rates. But the flip side of that is when you've got more fixed term mortgages it weakens the transmission mechanism of interest rates. But clearly the Bank of England is okay with that at this point. And Bailey was also asked in the press conference about this suggestion of 40 to 50 year mortgages. And interestingly the bank said that it's open to reviewing that. So leaving the door open. Of course if he had shot that suggestion down the government would have been very unhappy because it's going to help first time buyers get on the property ladder. Bloomberg European economics correspondent Lizzie BURDEN giving us all things. We thank you as always. For more let's bring in Melanie Baker Royal London Asset Management senior economist. Melanie I want to pick it up where Lizzie left off here the housing situation in the UK. How concerned should we be. I mean I think she's right to pick out the point around fixed rate mortgages. I mean there is there is a you know some shield there in terms of current mortgage borrowers but in terms of new borrowers coming on here housing affordability in that sense has deteriorated. And we know that you know there are significant cost of living pressures on households. So you know as we've seen a rise we're seeing a rise in interest rates as mortgage rates rise. I would expect that to be a drag on. On house prices at the moment mostly where we're seeing the impact seems to be on housing activity indicators instead. Melody you've got U.K. interest rates going up and then staying higher. Whereas if you've whereas over in the United States you've got interest rates going up and then starting to fade. Why the difference between those two. It's partly by my estimate of where neutral is. I'm not expecting the Bank of England to hike rates much beyond where I'd see neutral. I mean that partly reflects their their communication which has been a lot more cautious I guess and ambiguous than the Fed. They are very worried about cost of living pressures and what those do to real incomes in the economy. Well in the case of the U.S. you've got what looks like a lot more domestic inflation pressure. And the central bank clearly signaling that they want to hike rates above neutral. So you know if you get a central bank hiking well into restrictive territory and then as inflation comes down you know you would expect them to be able to reduce back down towards neutral. Melanie so a long way to go when it comes to getting things neutral rates though this question may seem a little premature but I have to ask how long until we start looking at rate cuts at least here in the state. Some of that is already getting priced into the market. Yeah I mean I've sort of penciled it into my forecast for late 2023. You know if you look at if you look at where the what the FOMC themselves the dot plot suggests they have got a little bit of a rate cut in the median dot plot. This is sort of 2024. So it is it is there on their forecasting theory if you like as well. But yeah the welfare. Melanie how are you thinking about the tail risk of significantly higher gas prices electricity prices in Europe in the UK. Electricity prices have been surging over the last few days up to records. We don't know whether the Russians are going to leave the gas on or turn it off. How easy is it to figure out what your model could look like by the end of this year if we don't know that critical input. Yeah. It's a volatility commodity price and especially so this natural gas element makes life really difficult in terms of forecasting inflation and forecasting how bad any slowdown will be. But in the case of the UK we already know this is very likely to be a large increase in energy bills coming in October already. So any higher prices now potentially worse and increase the risk that there's another increase beyond that. So we can we can sort of see a bit about it. No but about the timing that things are likely to get worse in terms of potentially worse in terms of cost of living pressures later this year in the UK. I mean in Europe generally that that sort of tail risk of actual you know needing things like rationing on energy provision that's that's a real concern that that's sort of those things that could just suddenly hit forecast. I think in an unexpected way. Melanie we're talking about the beach. We hear about talk about from the fiscal part of the equation as well. To what extent are some of the efforts in terms of energy subsidies for example actually going to make a difference is something that has been considered here in the states and really theme kind of a half measure. Does the same apply to the UK. We have seen the government provide fairly substantial fiscal support. More recently it is. It's that there's an element of that which is both universal should help almost everybody and an element that is very targeted towards more more vulnerable households. And that's that's positive. It can't it's not it's not going to be enough to offset the entirety of the cost of living pressures. But it's it's you know it is it is helpful. And they are doing something that said that you know there is this part of the reason they were doing that is because there is expected to be another big increase in energy bills coming yet in the U.K. and in October. Melody is there a level at which a weak sterling or a weak euro is a positive. Because at the moment just feels like a negative. Yeah I put it that way as well. So at the moment I'm most worried in terms of the outlook in Europe around cost of living pressures and a weak currency makes that that worse. So no I it's it's hard for me to look at it in a positive light particularly ISE for the for the economy and the risks that they're currently being faced. But I think that has a lot to do with purchasing power as well Melanie. I think from a trader point of view there's almost as race to strength or currency strength. I think from a consumer point of view it has a lot to do with how much you can actually buy gems of travel in terms of that pan post pandemic recovery square the two for us. How much pain is this causing for the actual consumer. About 30 seconds here. Yeah it's causing a lot of pain. So if I look at where the where the weather sort of big inflation drivers have been you know it's it's core goods prices. So it's been a lot of these sort of supply chain issues that have really pushed up imported goods prices a weaker currency and that that adds to that problem again. Melanie great catch up. Thanks for the analysis really appreciate it. Melody Baker Royal London Asset Management senior economist. This. It's time for the Bloomberg Businessweek to look at some of the biggest business stories in the news right now and you can get to. Bloomberg has learned that a consortium led by KKR is emerging as a front money to buy a stake in Deutsche Telekom wireless tower portfolio. The business could be valued at around 20 billion dollars in any deal. Deutsche Telekom would pick a winner. This week the U.K. wobbles owner of apps such as social media and search engines to curb state linked disinformation. If they don't they face fines of as much as 10 percent of annual global sales. The crackdown is part of the forthcoming online safety bill. And the price of copper has fallen to its lowest level in 17 months. The metal is widely considered an economic bellwether. It is now trading below eight thousand dollars a tonne as a group metals just posted. That was caught in a slump since the 2008 financial crisis and troubled crypto land involved says it has signed a tentative agreement to be acquired by rival next. No word on the price. On Monday Valls announced it was freezing withdrawals. The Singapore based company is the latest among several crypto lenders to resort to emergency measures off to a digital asset market round. And that is your latest business. Pretty good. Thank you. A quick check on the American markets here because the sell off well it's accelerating. You're looking at the S & P 500 down about 2 percent. We're hovering near the session lows. But what isn't is the NASDAQ. Because we saw this immediate drop in the Nasdaq at the open and that's actually the outperformance only down about 1 percent. But take a look at this. The dollar is where all the action is. That strength in the greenback is eating into the stock story. Also getting into the crude story guy crude at about one hundred dollars a barrel on this side of the ocean. Crude is having a massive impact on the Footsie 100 today. The Footsie one hundred is down by nearly three percent right now. You've got big names like BP and Shell down very very heavily and really weighing on the Footsie 100 today. It's almost the reverse of what we saw yesterday. So the Fortune 100 is down by two point ninety percent. The DAX is down by two point ninety percent as well. You're seeing some of the big industrial names under pressure the CAC it's the names like Total but LVMH also down really sharply as well. European equity markets are having a very very tough time of things today. We'll deal with the details next. The close is coming. This is Bloomberg. The alarm bells are ringing. It's getting ugly out there. I think t ISE just gone below a hundred WTI below one hundred first time since May 11th. That just gives you an indication of what is happening out there. Commodities are really taking it on the chin right now. That city call we're going in that direction. Remember J.P. Morgan talking about the potential to 300 bucks a barrel of crude. Well at the moment we are definitely heading south. You can see it reflects the equities here in Europe the energy stocks. Certainly a big part of what we're looking at here puts us down by nearly 3 percent. BP Shell total in France down pretty hard on the DAX. It's the industrials. And you are seeing some of the luxury names also come under pressure in the French market. LVMH down and down really hard. Some real heavyweights putting pressure on the market today. So a sea of red out there is an ugly ugly session for European equities. Let's talk about how the stocks 600 has gone today to real significantly. It's sort of big legs lower. First one kind of mid-morning and then another one as the U.S. opens takes us down another leg lower. And we are down near session lows. We are flirting with 400 right now 400 nearly on the nose 400 spots 61 were down by eight nearly nine points down by two point one percent on the footsie. Sorry on the on the stock 600. Let's talk about what else is happening out there because these are contributing factors. It's what we're seeing certainly into the equity market. Euro dollar 1 0 2 4 2 3 to 1 0 to handle. Haven't seen that for 20 years here in Europe with that by one point seven percent. The British pound is trading sub 120 1 19 0 7. We're down by one point seventy three percent. Now normally you get a big move lower on the on the currency markets. You'd get the opposite effect into equity markets because it translated earnings. You are not seeing that which tells you just how ugly the situation is in Europe. German 10 year yields down and down sharply as you can see. So a big bond market bid coming back. We're down by 14 nearly 15 basis points today. So really big violent moves we're seeing across a range of assets today. Let's talk about it from a sector point of view. Just give you an idea what's happening there as well. Down at the bottom as I mentioned we are seeing the energy area really under pressure. Look at energy stocks down by six points to 6 percent. These have been some of the biggest safe havens so far this year. You don't well have you been in energy basic resources the mining stocks down. We were talking about what's happening with copper just a moment ago. That is sharply lower. There is but one sector in positive territory here in Europe. That's real estate. Health care is hanging in there as well. The grocers are doing fairly well. Food and beverage telecoms the defensive end of the market is outperforming. But even there we're seeing it under pressure. Let's talk about some of the names that we're watching so carefully here. I talked about what's happening in the energy space. Look at what is happening with Shell one of the real heavyweights here in Europe down by eight eight and a half percent right now says Shell. Under massive pressure Juniper is down by nine point eighty nine percent. This is the troubled German gas company talk out a handles plant and others over the last couple of days. I think Spiegel had a story as well yesterday talking about maybe the German government taking a big stake here. Remember the unit was not allowed to pass on the higher gas cost that it's having to take on the spot market to consumers. The German government therefore may have to step in. 25 percent stake being talked about. And then we come to the airline sector IAG the owner of British Airways down and down sharply today. We're seeing slot waivers being confirmed here in the U.K. which means it's the kind of use it or use it slot waivers that we're talking about. That means that airlines can now start to reduce capacity cut flights. And we've seen that today. Be B.A. Covid flights at Heathrow I think is around 50 100 flights at Heathrow and Gatwick. This is where they basically try and balance supply and demand over the summer. SARS having huge challenges as well filing for Chapter 11. It looks like the pilots strike may have accelerated that pretty. We'll talk about this a little bit more detail in a moment. But a really ugly session here in Europe across the board travel to energy into the commodity space more broadly. Yeah guy I think that pilots strike is where it really run when to throw in here because I was just at LaGuardia last week. We were talking about the chaos perhaps ahead of July 4th. It seems like people had anticipated but they had anticipated that chaos simply because of those labor strikes and those labor negotiations. American Airlines for example last week had to increase their pilot salaries by 17 percent going into 2024. Meanwhile the likes of Delta Southwest Alaska still in those negotiations. Let's bring in Bloomberg's Sam Phillips now to break it all down in terms of the travel chaos and travel challenges. Sir thank you as always for joining us. Let's start with the pilot story. The flight attendant story here. Talk to us about the challenges in the labor market when it comes to this industry. Yeah. Thanks for it. So the pilot and the labor industry at the airline industry at the moment is in a very very tough place. I mean remember at the height of the pandemic a lot of airlines got rid of staff because of the fact that they wondered if flying anywhere. And now they've had to ramp up as demand surges. And that's where all the airlines across the world are seeing a massive shortage of staff. And that's really having an impact on their ramp up operations. I mean we've seen the likes of British Airways scaling back their recovery this summer as they look at sort of ways to sort of make sure that they have enough staffing in terms of how much capacity kick out of the market how much needs to come out. What is it. Fifteen hundred flights now we've seen canceled by British Airways somewhere around somewhere around there. What is it going to take to get supply and demand back into balance. So that's really a critical question for the airline industry. The airline industry is really trying to figure out how much is really enough to be able to sort of run a reliable operation this summer because that's really the key because while the cancellations may not be sort of welcome at least it sort of prevents them from having to do last minute cancellations because they can't operate the airline at that moment. On those flights. So what does that mean in terms of a reversal of this. Because I mean I ask this in the markets all the time. You're seeing these extreme moves in oil and these extremists is IBEX. What marks the reversal. I'm curious what is going to be that pivot point for the airlines that are by the way still seeing this record demand to actually increase capacity once again. So the airline industry has been sort of ramping up staffing. But don't forget we have the sort of rising cost of living and inflation looming. So I think the key question that the airline industry across the board is really asking is will this demand sort of sustain beyond this summer. So while the summer demand is robust and the airlines contrary keep up with it it is really sort of key to be seen whether or not demand will sustain and sort of go into the winter and next summer. So yes potentially failing. Could others follow. I think SARS is a unique case. I mean they've got sort of stayed back. I mean they're one of the sort of late followers during the sort of pandemic. I mean they had sort of state support during the pandemic and they kept their operations going. And I think it's really key to see how they can sort of get through Chapter 11. I mean the reason they said that they chose Chapter 11 was because of the fact that it is an easier process compared to the other processes that are out there. And the airline says that they should be out of it in about a few months and they can sort of restructure costs and bring down costs. I mean they said that the reason they have such issues is because not because of understaffing but too much staffing. And essentially they're trying to reduce costs. The. Said I have to ask you about jet fuel prices. A lot of these airlines are unhedged going into what has been some pretty record moves when it comes to commodity space. When are they going to get control of that situation. That's really the billion dollar question really. I mean the airline industry has been trying to hedge. I mean European airlines are hedge better than the peers in the US and Asia. But again no cages only get you so far. And it really depends to be seeing how the oil prices sort of go from here on. And that's really what the airlines will be closely tracking to see if they can get any respite and cost the banks that sort of fillip with a daily travel update. Seems to be that way at the moment. This is a story that certainly is moving very rapidly. European actors are wrapping up for the day. IAG certainly one of the stocks under pressure. Little tick higher during the auction process for the footsie. One hundred and elsewhere. But nevertheless basically a session that has taken us from left to right on the charts. And we have gone down down down throughout the whole of the day. The Footsie 100 DAX and the CAC all finishing more than two and a half percent to the downside nearly three percent to the downside for the DAX. DAX continues to be the big underperformer. We'll carry on the conversation to more about this and what is happening with the European economy on the cable at 5 p.m. 12 p.m. here in New York. Damien Sassa is going to join us tonight. We are going to be spending a lot of time talking about this dollar story what is happening with the euro the impact that it's all going to have around the world. So you could find us on DHB Digital Radio. You can also find us on the podcast a little bit later Spotify and I choose. What are you going to invite me to host the show. Guy I'm still waiting. Any time. Any time. Honestly you want to do it this week. I would happily have you on this show. We're going to have that discussion on HBO. Coming up more on Europe's energy crunch. Germany's cabinet is rushing through legislation allowing it to rescue struggling energy companies. Europe are set to receive would be the first excuse me to receive a bailout. More on that next. This is Bloomberg. This is Bloomberg Markets European clothes I'm sure you could get to. And you're all going to look at a luncheon of the principal room coming up. Geoff Thomas the NASDAQ chief commercial officer joining Bloomberg Television Five to be in New York time. This is Bloomberg keeping you up to date with these from around the world. His first Brad Stone could get to the mayor of Highland Park Illinois says the gun used in the deadly attack on a Fourth of July parade was legally obtained. Nancy showing suggested to NBC News that the country needs to quote reexamine the laws. A 22 year old woman and a man excuse me has been arrested in connection with the shooting. Six people were killed. Dozens more were wounded. The Bank of England said the global economic outlook has deteriorated materially. The central bank cited surging modestly prices that pushed up inflation. In its report on financial stability the BNP said volatility in the cost of energy and raw materials poses significant risk and disruption. And European natural gas prices have risen to the highest level in almost four months. Benchmark peaches jumped as much as 8 percent. Russia supplies are at medium lows and there is intense competition for liquefied natural gas with Asia. Both news 24 hours a day on air and on Bloomberg Quicktake now by more than twenty seven hundred journalists and analysts in more than and twenty countries which pick up 10. This has been that guy. Rebecca thank you very much indeed. That's what I see what's happening with the energy complex right now because over the last hour or so it has started to get really really ugly out there. This has been one of the best trades so far this year. Energy stocks have done well on the back of it. It is unwinding and unwinding rapidly right now. You've got WTI trading at ninety nine 20. We are sub 100. We're down by eight eight and a half percent. Brent crude is trading 1 2 3. We're down by nine point to five percent. We've also got the gas story we need to factor into all of this. We don't know what's happening with European gas going forward. A key maintenance period coming up for Nord Stream 1. The energy story is at the heart of pretty much everything we're watching so carefully right now. Sara actually joins us now SVP Energy International Energy International founder and president. Sara I've got I've got Brent Crude down by nearly 10 percent right now. Can you give us a little bit of insight as to what you see happening next. This is a very very ugly session in the crude market. It is especially considering that investing in oil stocks and refineries was the only the last escape for most of the investors. So what is happening is the market is really fearing a recession and the significant demand destruction for oil. So that has been had impact on oil prices. But obviously the gas crisis is different especially in the European region. But on the oil and the fear of recession this economic slowdown and the global reduction of oil demand is the major fear and reason behind that. Sara I'm curious about the tradeoff here between natural gas prices and oil prices. I mean this is something that we talk about in Europe a lot but perhaps not in the United States where the natural gas market is perhaps a little bit more insulated just given it doesn't have the massive kind of export market that perhaps Europe does. I have to ask though when it comes to utilities that use that natural gas it kind of seems like oil relatively speaking is cheaper. Can you speak about the tradeoff between the natural gas and oil story within the United States. Sure. Something that is interesting is that if you look at the price increase of different energy source says the crude oil price increase even before it starts coming down was much less in terms of growth and then looking at natural gas and coal prices. And we are expecting that the natural gas prices are still increasing. Well it's comparing Europe and us. We're having different results. Obviously US produces a lot of natural gas. Most of us problem as of now is lack of refinery capacity which has led to higher gasoline prices. Also that increasing demand during the summer driving season. But looking at Europe this story is different because Europe is not a major producer of natural gas. Most of the gas in this region is imported and most of it as you said the utilities and power generation is from natural gas which has been clean nuclear or coal oil. These are the ones that have been kind of the less priorities. How different the energy market is going to look on either side of the Atlantic to get crude prices coming down very sharply. U.S. nat gas prices under pressure but in Europe. Gazprom is going to go into maintenance on Nord Stream one next week. We don't know whether it's going to be turned back on again. Gas prices could explode. Higher energy costs would explode higher in Europe at the same time that they're falling sharply in the United States. How is this going to work. Well the thing is that even if you think that US could export significant amount of LNG to Europe two things is involved. One is the cost of producing that NIKKEI find that gas and exporting DAX also the price. Gas prices in that region. So obviously the suppliers are offering higher prices to match up the prices in European regions. So as I said there is a huge gap between really significant gap between the price and natural gas prices in the U.S. and into Europe because Europe is mostly importing. Russia was a major supplier and importing LNG is different. But I want to mention something that is important as natural gas prices goes high. Higher and higher is not just the impact the pressure on consumers in terms of the utility and electricity prices but on the food because most of the fertilizer around the world and in Europe are produced from natural gas. So when the prices of gas goes higher the prices of fertilizer goes higher or the volume of production will come lower because many other factors would reduce their production or the production of fertilizer which has direct impact on food prices. So I want to talk about the market dynamics as well you just talk to us about the fundamental ripple effects here. But I'm curious about how much active participation is actually in the commodity market right now. If you look at the stock market not everyone is actively trading stocks. That's one of the issues that you're starting to see in a market that's tanking. Could you apply the same logic to the commodity space where perhaps a lot of people are either dodging the volatility or going in two feet or two feet in a diving in and saying this is the macro hedge that we've been waiting for. Well the market is very unpredictable and it's very hard to to really anticipate the direction of the market. As you you're just guy just mentioned at the beginning of the program how the oil prices are dropping. When just a couple of weeks ago everybody was worried about them increasing putting pressure on OPEC's plus to producing more. So the March market is very uncertain. And unless you are just using this volatility to make money and your confidence that you made money not lose money. Otherwise for most of the investors certainty in the market and predictability is what they require for investing. And all these news of recessions and economies slow down. No one knows where the bottom of the market is. So it's really hard to have lots of active participants. Sara the only person probably that's going to be super happy with what we're seeing on the screen right now is President Biden. You've got oil prices coming down very sharply. In theory that should mean that gasoline prices come down fairly sharply. How quickly and will we see the lower oil price translating into lower petrol pump prices in the United States. Gasoline prices in the United States. That's a very good question because that is not going to have the same amount of impact on gasoline prices because most of the gasoline providers had have it had done these purchases prior to the current prices. So we see that lag of adjustment but also something that is very important is the lack of refinery capacity. So if the crude oil prices shrink significantly because a lot significant amount and refinery capacity in US because of the ESG factors have been reduced or just really went out of the supply chain we have that problem United States. So again there is this difference. We need the prices of oil crude or might reduce but we need that refinery capacity in the US that we don't have that is lacking at this moment. So you're not going to see that impact as quick and as significant that we are seeing on a crude oil prices. Sara Luxury SBB Energy International founder and president thank you as always. As we head to break here we're looking at Brent crude a one to three handle nine months crude a ninety nine handle both contracts down over 8 percent. We're going to dig into it more throughout the day. This is Bloomberg. A lot of red on the screen. Take a look at these moves in the commodity space here. Brent crude a 1 0 3 handle 9 X crude dropping below that. One hundred handle both down over 8 percent 9 percent of Brent crude really throwing those marches that you saw even during the trade war out of the water. Here's what's worse. The dollar index keeps rising and rising. How much of what you're seeing in the commodity space is a function of the dollar story. Something else that's a function of the dollar story is going to be US stocks tumbling on those recession concerns but also a matter of the back story. Katie Greifeld is tracking the moves. Katie I have some good news and bad news. The good news kind of is that U.S. stocks off their very worst levels of the session could see the S & P 500 down about one and a half percent right now had been down more than 2 percent. The same cannot be said for the commodity complex as we all know. Now Max crude below one hundred dollars per barrel. Copper futures to near their lows of the session. And if we look at how this is playing out in equity markets on the sector level it's banks. It's energy. It's health care that's down today. Exxon in particular down more than 4 percent as we just watch energy slide and slide. J.P. Morgan to under pressure as we watch that yield curve the 2 10 spread very close to inversion over here in the states. And that's a lot of red. And it makes sense if you look in the context of the misery index for both the US and the EU. So this is the inflation rate and the unemployment rate. And according to this measure we've been getting more miserable since the start of 2021. A lot of that has been coming from inflation of course. We'll see if the labor market starts to crack. That is certainly the expectation of course. This is also a big haven beat into the U.S. dollar. Again we are on parity watch for Euro USD. It has a one or two handle right now. And that has been bad news for some of the big cap exporters that we like to track. Coca-Cola Procter and Gamble and IBM all feeling the pinch today. Bloomberg's Katie Greifeld thank you as always. Coming up Megan GREENE senior fellow at the Harvard Kennedy School. She joins the balance of power with David Westin on Bloomberg Television and radio guy. They have lots to discuss. He's got some very interesting views on what the ECB should do next how problematic its new policies could be. We're going to pivot over to Bloomberg Radio as well. He's going to be joining me today. We're gonna set that up. Let me assure you top of the hour I'm going to be joined by Damian Sass Out. We're going to discuss what's happening with the euro. This energy story is pretty epic right now. We'll get his take on the impact on the emerging markets as well. There is much much to discuss. DHB digital radio is where you will find us. And for me this is.

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Bloomberg Markets: European Close (07/05/2022)

Bloomberg Markets: European Close. Live from New York and London, analyzing the major market moving stories across the day in Europe, hear from the biggest newsmakers and showcase the unrivaled expertise of Bloomberg News. (Source: Bloomberg)

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